Governments Using Levers to Cool or Restart Foreign Buyers’ Market

Plus, a roundup of other news from around the world this week

As of Tuesday, foreign home buyers in metro Vancouver will have to pay a new 15% property transfer tax on all residential purchases.

The measure is meant to slow foreign speculation and curb the market’s astronomical growth, which recently showed a 37% year-over-year increase in the luxury sector, said Kate Everett-Allen, a partner of international residential research at Knight Frank.

It’s a type of growth that isn’t sustainable, said Michael Dolega, a senior economist at Toronto-Dominion Bank. So when British Columbia’s provincial government started tracking residential purchases and saw that about 10% of recent home sales were to foreign buyers, it took action.

“It’s not that they don’t want investment in the housing market,” Mr. Dolega said, noting that many of the buyers were from mainland China and Hong Kong. “They just want to ensure that the people who live and work in metro Vancouver are able to afford housing. Otherwise, the economy doesn’t work.”

Vancouver isn’t the only global city that has enlisted policy measures to make it more difficult and expensive for foreign buyers to score top-tier properties. Governments often tighten or loosen laws and regulations to attract or dissuade foreign buyers, depending on their needs.In most cases, these measures have done what they were intended to do.

In Australia, for example, where foreign buyers have been barred from buying resale homes since 2010, new measures aimed at international investors include an administration fee to process a home sale, and increased stamp duty and land taxes. Together, these can add AU$400,000 to the purchase price of an AU$5 million home in Sydney.

Elsewhere, the U.K. recently added a 3% stamp duty on second homes, even if it’s the buyer’s first in the country; New Zealand added a similar tax on second homes and now requires that foreign buyers apply for a government ID; in 2012, Hong Kong and Singapore introduced 15% stamp duty taxes for non-permanent residents similar to those recently introduced to Vancouver.

These seem to have had the desired effect, Ms. Everett-Allen said: Vancouver has topped Knight Frank’s luxury real estate growth index for five consecutive quarters, while Hong Kong is now at the bottom of that list, with an 8% decrease in recent year-over-year calculations.

This isn’t a new phenomenon, Ms. Everett-Allen noted. Switzerland has banned foreigners from buying outside of specific holiday destinations since 1983, she pointed out, while other global destinations including Mumbai and Fiji are almost wholly off limits for non-domestic purchasers.

At the other end of this spectrum, certain governments have introduced measures to attract overseas buyers to markets decimated by the global downturn.

Among the most well-known of these is Portugal’s “golden visa initiative,” which offers non-EU residents a visa if they make a property investment over 500,000 euros. From October 2012 through January 2015, this initiative brought in more than $1.5 billion euros from real estate purchases, according to government figures.

Similar programs have been introduced in Spain, Malta and Cyprus, among other places.

“These ‘golden visas’ have helped to spur growth in once lagging luxury property markets,” said Monique Sofo, vice president of strategy at Christie’s International Real Estate. “Although initially slow in take-up, many of these programs are beginning to attract a steady stream of affluent investors and immigrants, predominantly from Asia, Russia and the Middle East.”

Because of the success of these types of programs,governmental maneuvering to attract or cool foreign interest is far from over.

“I imagine as the pace of globalization increases, we’re only going to see more examples of this taking place,” Ms. Everett-Allen said.

Here’s a look at other news from around the world compiled by Mansion Global:

New York’s condo glut puts the brakes on land sales
As the pool of buyers for luxury Manhattan condos dries up, with slower economic growth, a stronger dollar and depressed oil prices cooling demand among Chinese and Brazilian investors, high-priced sales of land to build luxury condos on are evaporating too. Just 48 sales of development parcels in Manhattan were completed in the first half of 2016, compared with 79 a year earlier and 73 in the first half of 2014, Bloomberg News reported. “Land is always one of the first asset classes to drop in value when a market is transitioning,” said Robert Knakal, chairman of New York investment sales at Cushman & Wakefield Inc. It’s “indicative of the perspective that developers have of what the market is going to be like two or three years from now.” (Bloomberg News)

Brexit watch: London luxury rents rise after vote
Asking rents for for two-bedroom properties in Kensington and Chelsea have gone up by 0.4% from May to July, with the average rental price now £3,989 (U.S. $5,227), according to data from London real estate brokerage Portico. Rents in Westminster have increased by 1.7%. Londoners nervous about the impact of Brexit on the sales market are looking at prime rentals instead, pushing up prices, said Robert Nichols, managing director at Portico (City A.M.)

Sydney’s most ‘livable’ areas are also crime hotspots
Some of Sydney’s most attractive neighborhoods are also some of its most crime-ridden, according to a study called Liveable Sydney Tract Consultants and Deloitte Access Economics, which found that per-capita crime rates rise along with overall livability rankings. “There’s more housing, more people, more crime and a correlation between those facts,” said Tract Consultants senior town planner Georgia Sedgmen. Busy shopping areas, restaurants and transportation hubs attract both high-end buyers and criminals. Among the suburbs with higher-than-average crime rates and livability scores: the Rocks, Sydney Central Business District, Haymarket and Potts Point. (Sydney Morning Herald)

Leaning tower of ’Frisco
San Francisco’s Millennium Tower, a 58-story condo at the corner of Fremont and Mission streets, has sunk 16 inches and tilted two inches off vertical since its completion in 2008. Residents blame the developer for not building on bedrock. Meanwhile, developer Millennium Partners is blaming construction of a new transit center next door. “All buildings settle over time. 301 Mission has settled more than originally anticipated because it was affected by subsequent construction by others,” the firm said in a statement. (ABC 7 News)

Oversupply in Los Angeles’ downtown is boon for luxury renters
More than 3,700 new apartments have come on the market in downtown L.A. in the past 18 months, and 6,260 more are under construction, according to real estate firm Transwestern. That translates to a 15% increase in downtown apartments, both sale and rentals, to more than 40,000, the Los Angeles Times reported. With rents falling amid the glut, some landlords have been offering free rent as an incentive. “Landlords don’t have the leeway to push rents as they did in the past,” said Steve Basham, senior market analyst with CoStar Group Inc., who added that some developers fear downtown is at risk of becoming oversupplied. (L.A. Times)

Walkability can add value to your home… unless you live in Southern California
A one-point increase in a home’s “walkability” on a scorecard developed by online brokerage Redfin can increase the price of a home by an average of $3,250, or 0.9%. The score, on a scale of 0-100, is based on walking distance to jobs, schools, shopping, parks and amenities. In San Francisco, a Walk Score of 60 to 80 boosted a home’s value by $187,630, but in Phoenix, the increase was only $15,700. In Orange County, Calif., walkability actually detracted from a home’s value because, as one Redfin agent said, “Luxury in Orange County is all about exclusivity and seclusion.” (Geek Wire)